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February 18, 2020 at 03:24 PM
The Securities and Exchange Commission has proposed ways to update and expand content and data access for National Market System stocks and “introduce competitive forces … for the first time,” the regulator said Friday, adding that the NMS rules date to the late 1970s.
It could likely do just that, according to Phil Bak, CEO of Exponential ETFs.
“Wow! SEC moves to break exchange control over stock market data. This is going to be a massive hit to NYSE and Nasdaq, and it’ll be a significant boon for fintech and data companies,” Bak said on Twitter.
According to SEC Chairman Jay Clayton, the proposals “would enhance transparency and ensure that improved NMS market data is available on terms that are accessible to a wide variety of participants in today’s markets,” via the possible inclusion of broker-dealers and other players.
But there could be some downsides to the changes.
Michael Graub of Principal Family Office responded to Bak’s tweet, saying “Eventually software disruption eats rent seekers.”
This prompted Bak to explain: “Hot take, and somewhat fair, but this is going to completely tank the exchanges and I don’t think that’s a good thing. Fact is that our market structure is the best in the world, even if too complex, and I worry about unintended consequences of losing exchanges as advocates.”
In an interview with ThinkAdvisor, the ETF executive pointed out that “open and closing auctions have been a key source of revenue, along with ETF trading and sales of market data” to the exchanges. Plus, the exchanges have seen their participation in overall trading revenue “decline for some time …, and equities can trade anywhere.”
Along with recent changes to closed-auction exclusivity, the latest proposed market-data rules “could have a big impact on the exchanges’ revenue model,” Bak said. ‘
He admits that “when you have losers, you have winners, too,” as change occurs. “We could be moving to a model with information and data more readily available …. If the proposal moves us there, it should be good for the market, as long as the exchanges remain viable stewards of the market structure.”
‘Competing Consolidators’
At present, the national securities exchanges and the Financial Industry Regulatory Authority act jointly under three NMS plans (or Equity Data Plans) to collect, consolidate and share data on NMS stocks. They provide that data to exclusive securities information processors (SIPs), which then consolidate that information and pass it on to the public.
